Elements Contributing To Hong Kong

Published Date: 02 Nov 2017

With English Writing Requirements

Final Draft Submission:

Competition for logistics hub status:

Hong Kong VS Guangzhou

Student Name:

Lau Ka Wai

Student ID:

12095051d

Group ID:

EWT2

Date:

5 May 2013

Word count: 2458 , 2640(with content page)

Content Page:

P1 Content Page

P.2 Abstract

Executive Summary

Main elements contributing to competitive regional logistics hub status

- Market Coverage

P.3 Main elements contributing to competitive regional logistics hub status

- Basic facility construction

- Quality and Quantity

- Fees and Charges

- Policy and the Government’s attitude

Elements contributing to Hong Kong as a logistics hub

- Historical factor (Location)

P.4 Elements contributing to Hong Kong as a logistics hub

- Free of charge policy

- High safety and good security

- High cargo capacity

P.5 Elements contributing to Hong Kong as a logistics hub

- Good developed communication system

Elements contributing to Guangzhou’s Hub Development

-Historical factor (Location)

-Policies supported by the center

P.6 Elements contributing to Guangzhou’s Hub Development

- Manpower

- High connectivity and accessibility

Indicated performance analysis of the logistics industry in Hong Kong and

Guangzhou.

-Overall

-Predicting the future development of both logistics hub

P.7 How logistics hub affect the local economy in the near future.

The difficulties in developing further about logistics hub on both places

Conclusion and Recommendation

P.8 Conclusion and Recommendation

P.9 Reference and Appendix:

Abstract:

Recently, the HKSAR government has decided to spend more money and resources on developing the logistics in HK. Logistics and aviation are very important industries in Hong Kong contribute one-fourth of GDP in Hong Kong. Due to competition from other places, such as Guangzhou, it is very important for Hong Kong to maintain its competitiveness and its dominant position in logistics. Otherwise, other places will overtake the position of logistics in Hong Kong in the near future. This paper will examine and explore the difference between Hong Kong and Guangzhou as a logistics hub, including their advantages and disadvantages and predict their future development.

Executive Summary:

According to the Hong Kong Census and Statistics Department (2013), there was 70,555,000 tonnes port cargo throughput in the Q4 2011 and rise 7.5% year-on-year. However, there were only 66,288,000 tonnes port cargo throughput in the Q4 2012 and dropped 0.6% year-on-year. The similar result occurred on both river cargo throughput and seaborne cargo throughput in Hong Kong. There are 1 international airport and 9 container terminals with 24 berths in Hong Kong. Since 1987, Hong Kong has been the no.1 leading container port in the world. In comparison with Guangzhou, there were 36,728,880 tonnes port cargo throughput in the Q4 2011 and 33,499,910 tonnes in the Q4 2012 rise 4% year-on-year in Guangzhou. Similar results also occur on river, railway as well as road cargo throughput. There is one international airport and 4 main ports with 21 berths in Guangzhou.

2. Main elements contributing to competitive regional logistics hub status

2.1 Market Coverage

To be a satisfied logistics hub, the logistics hub should have large market coverage. As that country or place has large market coverage, it could promise a certain demand which could attract the potential customers from different places to buy the logistics services and contribute to the development of logistics hub. Also, the size of market coverage can show the capability and competitive strength of that place in an objective way.

Basic facility construction

Good basic facility construction, such as a well-developed road system and high-quality communication system, is a necessary element for developing and maintaining a logistics hub. As long as the logistics hub has the up to standard infrastructure, the attractiveness of investing will be increased. As these modern systems can make the trade be more convenient, the logistics industry will be benefited significantly by this essential element.

Quality and Quantity

Another key factor for having a successful logistics hub is how good the quality is and amount of quantity that city or place can offer. Quality is one of the wisest business investments; it gives a better impression to the clients if the quality of service is up to standard. Quantity is also a main element. It is important for the logistics hub to handle the large amount of the cargo or products to prove that they can be trusted in terms of doing logistics.

Fees and Charges

The city or place should set some reasonable fees or charges for importing and exporting cargo. For potential clients, it is very attractive for them if that logistics hub set a relatively low fee or even free of charge.

Policy and the Government’s attitude

Suitable political support can positively impact the condition of business and logistics are not an exception. If the local Government launches the right policy, it could help the growth of the logistics as well as the development of logistics hub. With the help of the regulation, the logistics industry can grow healthily and steadily.

Elements contributing to Hong Kong as a logistics hub

Historical factor (Location)

Hong Kong is located in southern China and within the Pearl River Delta (PRD). Geographically, it is one of the busiest cities in the Asian Pacific, most of the ships or airplanes have to stop here for transport and maintenance. Hong Kong is one of the hubs among the world in the hub and spoke model, many freights have to retransfer the cargo and products at Hong Kong. Also, south China is very close to Hong Kong. Convenient transportation and their similar life style and eating habits have made South China the major selling market for Hong Kong's tariff-free goods (Life of Guangzhou, 2007).

Free of charge policy

Hong Kong is one of the smoothest tariff-free ports on the world; it was welcomed by global traders for many years. Hong Kong is just like a bridge connecting Asia to rest of the world. Most of the cargos which are exported or imported from Hong Kong are not required to pay the tariff fees except some of the product, such as liquor, hydrocarbon oil, tobacco and methanol. According to the customs' management office on the products of Hong Kong origin, 26 mainland ports are now importing tariff-free goods from Hong Kong (Carrot Chan, 2007). It is a direct reflection showing how tariff-free ports affecting the current situation in terms of logistics. Because of the free port, most of the logistics companies are willing to choose Hong Kong as their center to transfer or retransfer the finished goods.

High safety and good security

According to the United Technologies (2010), Hong Kong Chubb is providing the cargo terminal fire protection on the conventional fire and security system for HKIA. "Fire detection and alarm systems, gas suppression and drencher system, high sensitivity smoke detection system, and roof and in-rack sprinkler systems will be installed in the new cargo terminal." To ensure optimal performance, Hong Kong Chubb will maintain the whole system under their existing service agreement with the airport. With the rapid growth of HKIA, the mixed fire and security system is easily expandable for future development. 

High cargo capacity

The cargos in Hong Kong are in charge of Hong Kong Air Cargo Terminals Limited. It is one of the leading air cargo terminal operators in the world and located in the Hong Kong International Airport. It is Hong Kong's superiority that such a large air cargo company is located inside Hong Kong. According to secretary for Transport and Housing Bureau (2012), HKIA can handle 50,000,00 tonnes air cargo per year; its International cargo has always been number one since 1996.

Good developed communication system

Hong Kong is an international city, many high tech systems, such as wifi and electronic data interchange (EDI) which use to a better arrangement of cargo, are very mature, this also can attract the companies to choose Hong Kong as their logistics hub. The telecommunication system in Hong Kong can provide high quality domestic and international services. In addition, the speed of accessing the Internet at Hong Kong is very high (9Mbit/s) according to a survey conducted by Pingdom at 2010. This result is far ahead the global average speed (1.8 Mbit/s). It is another advantage for Hong Kong maintaining its international position and position of logistics hub among the competitive cities. In this point, the speed of accessing the Internet in China is very slow (0.8 Mbit/s) and is far behind the global average speed.

Elements contributing to Guangzhou’s Hub Development

4.1 Historical factor (Location)

Guangzhou is also located near the South China Sea and within the Pearl River Delta. The goods produced by the factories in the PRD can use the logistics hub in Guangzhou instead of Hong Kong because Guangzhou is simpler and convenient. Because of this factor, some of the international logistics companies, such as FedEx, have relocated of their Asian Hub to Guangzhou in 2009. In addition, Guangzhou is also an entry for the overseas goods to do a transfer or retransfer just like Hong Kong because of the optimum location.

4.2 Policies supported by the center

The Central Government has already introduced some policies to support the logistics hub in Guangzhou. For example, lower the land use tax for logistics enterprises; standardize the logistics, logistics parks, coal logistics as well as logistics. These policies can increase the attractiveness of Guangzhou to develop its logistics hub. For example, the Baiyun international airport, which is ranked the second and the third busiest airport in China in terms of passenger traffic and the cargo traffic, offer the FedEx can have their own ramp control tower. It shows that FedEx can control the aircraft movement on the ground, aircraft parking plans, landing and unloading priorities by their own. This reveals that the government gives that company a significant amount of freedom to do whatever they want. This kind of policy can attract the logistics company to group together and form a logistics center and hub automatically.

4.3 Manpower

Guangzhou is one of the biggest cities in China. As Zhejiang Logistics Network (2011) mentions, there are many migrant workers and many people work on logistics but with relatively low quality and ability, only a few people have the related professional knowledge of logistics. However, those people who work on logistics can also contribute to the development of logistics hub.

4.4 High connectivity and accessibility

The road and transport system in Guangzhou have been improving since Chinese economic reform, it is very convenient for industry especially those in PRD transferring their products using road vehicles. In addition, the connection between the major places in Guangzhou is quite strong compared with that in other cities in China.

Indicated performance analysis of the logistics industry in Hong Kong and

Guangzhou.

Overall

To conclude, both two places the paper mentioned before have their own strong point and weakness. For example, Hong Kong is a tariff-free port and with high quality services, but due to the limitation of the ground supply, it is very difficult to expand the business effectively. On the other hand, there are many land resources in Guangzhou, but lack of the professional logistics work is their weak point. There is a vast room for both cities to do an improvement.

In the short term, Hong Kong can still maintain their position on being a logistics hub, but Guangzhou is catching up very quickly, it is possible for Guangzhou replacing Hong Kong to get the leading position in logistics industry.

Predicting the future development of both logistics hub

Looking for the future, we can predict that the competition between Hong Kong and Guangzhou will go from bad to worse unless two places consider working together. As long as they cooperate with each other, they both can earn large amount of money in this profitable industry (Economic and trade commission china, 2013).

How logistics hub affect the local economy in the near future.

Morton Richard (2010) claims that, Ports and logistics can continue to generate wealth for the local economy. If the logistics is doing well, the local economy can benefit significantly from it. The success of the logistics hub can stimulate the local economy while the good local economy can also help to build up and consolidate the logistics hub and related industries. It is a win-win strategy for developing and managing well the logistics hub.

5.4 The difficulties in developing further about logistics hub on both places

As discussed above, both places have their own weak points on developing and maintaining the logistics hub.

Recently, there is a parade conducted by the striking dockworkers of logistics port in Hong Kong. The workers are not satisfied with their salary which they claimed that has not been raised by many years. Also, their working conditions are below the standard as they said. The situation would be improved only if the contractor and the subcontractor can increase the salary for their staff and improve the working conditions as much as they can. If both the employees and the employers are not willing to have some negotiation, it is difficult to improve the development of logistics in Hong Kong. From this news, it is clear that the human resources of logistics in Hong Kong are not enough and most of the workers are in old age.

For Guangzhou, the ports and hub are quite far away from the downtown, the logistics companies have to use extra money transporting the goods from the major cities in Guangzhou to the remote area of Guangzhou in order to reach the ports and hub. This is very inconvenient for logistics companies transporting their goods.

6. Conclusion and Recommendation

This paper have examined the elements contributing to competitive regional logistics hub status, elements contributing to two places as a logistics hub and predict the development of the logistics hub at last. Both two places will be benefit if they can work with and learn from each other, a healthy competition will be generated.

From the recent policy address of Hong Kong, the HKSAR want to promote the local logistics industry vigorously. For example, the government is preparing some land which will act as a modern logistics center in Teun Mun and Tung Chung, because the Hong Kong-Zhuhai-Macao Bridge, Tuen Mun-Chek Lap Kok Link and border crossings will be soon built, there are a potential for these two places to play an important role on being a logistics center due to the "Bridgehead effect".

Also, the government should consider helping some of the logistics company in Hong Kong to do the enterprise transformation. Clearly, the gross profit rates of selling and transferring high-tech products are much higher than that on necessaries. It can increase the profit earned by the logistics company significantly. In long term, if this goal is achieved, it is an easy task for Hong Kong to develop and maintain a well-known and high standard regional logistics hub.

In short term, the logistics industry can lower the charge of their service. By doing this, although the profit in each deal would be lower, the overall profit would increase since there will be more deal. This is not a long term strategy, but can be a good strategy if the logistics industries want to increase their competitiveness in a short period of time.

In long term, the government should consider training more logistic worker to maintain the competitiveness of logistics in Hong Kong. For example, the government can set more founded degree or high diploma of logistics. After graduated, the government can cooperate with the logistics industry to provide some jobs about logistics for the graduator with allowance. This mind encourages more people to work in this field and thus decrease the average age of the logistics worker.

To summarize, there are many advantages for Hong Kong maintaining and developing its own logistics hub, if the government can consider my suggestion, the logistics industry may benefit from the government’s attitude in terms of profit. Also, it is necessary for Hong Kong to do some optimization in order to prevent Guangzhou from taking the leading position of logistics hub.

Reference and Appendix:

Economic and trade commission china (2013). Future development of being a logistics hub. Retrieved from http://www.cietac.org/index.cms

Life of Guangzhou (2007). More Tariff-free Goods from HK Enter The Mainland. Retrieved from http://www.lifeofguangzhou.com/node_10/node_37/node_83/2007/06/15/118186992621730.shtml

Hong Kong Census and Statistics Department (2013). Transport, Communications and Tourism. Retrieved from http://www.censtatd.gov.hk/hkstat/sub/so130.jsp

Pingdom (2010). The REAL connection speeds for Internet users across the world (charts). Retrieved from http://royal.pingdom.com/2010/11/12/real-connection-speeds-for-internet-users-across-the-world/

Morton, R. (2010). Report on the economic impact on the Haven Gateway area of the transport, ports and logistics industry. Driving the haven gateway forward. pp.1-50

United Technologies (2011). International Airport Cargo and Passenger Terminals by Hong Kong International Airport. Retrieved from http://www.utcfireandsecurity.com/Newsroom/Pages/International-Airport-Cargo-and-Passenger-Terminals-by-Hong-Kong-International-Airport.aspx

Zhejiang Logistics Network (2011). 广州物流人才分析报告. Retrieved from http://wenku.baidu.com/view/7291f7a0b0717fd5360cdc74.html